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Wednesday, May 27, 2015

26 Income Securities For A Well-Rounded Asset Allocation

I am a firm believer that asset allocation plays a significant part in a portfolio's long-term results. In the past, I was asked if you could have a diversified portfolio of dividend stocks and other income securities. It is an interesting question that deserves further examination.

As for my portfolio, I consider asset allocation only when looking at my holdings in total. It would be much too difficult to maintain a good allocation within individual portfolios (income, growth, 401(k), Roth IRA, etc.), while trying to maintain my overall allocation. However, an investor could build a degree of allocation into a portfolio of dividend income securities. Consider the following:

Consumer Services Sector

- The Coca-Cola Company (KO) is the world's largest soft drink company, and also has a sizable fruit juice business. Yield: 3.2%

Energy Sector

- ConocoPhillips Co. (cop) is of the largest independent oil and gas exploration and production (E&P) companies in the world, COP spun off its downstream assets in May 2012. Yield: 4.5%

- Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. Yield: 3.4%

Financial Services Sector

- Aflac Incorporated (AFL) provides supplemental health and life insurance in Japan (78% of pretax operating profits) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage. Yield: 2.4%

- T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund and life cycle fund complexes in the United States, with December 31 AUM of nearly $747 billion. Yield: 2.5%

Health Care Sector

- Abbott Laboratories (ABT) is a diversified health care products company that is now focused on nutritionals, diagnostics, generic drugs, and medical devices, following the spinoff of its R&D-based prescription pharmaceuticals business. Yield: 2.0%

Technology Sector

- Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols. Yield: 2.9%

- Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite. Yield: 2.6%

Utilities Sector

- Consolidated Edison, Inc. (ED) is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania. Yield: 4.2%

- Southern Company (SO) is an Atlanta-based energy holding company and is one of the largest producers of electricity in the U.S. Yield: 4.9%

Needless to say, the above will not provide a perfect allocation, but it goes a long way to provide diversity in a portfolio focused only on income securities. In my personal portfolio, I buy the best available dividend securities and use my other investments to balance my asset allocation.

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